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CFPB Sues Debt-Relief Companies Posing as Federal Government

Wed 18 Oct, 2017  /  by McIntyre & Lemon  /   Client Alerts

10/18/17 – The Consumer Financial Protection Bureau (CFPB) sued two affiliated companies and a service provider for falsely presenting the companies as being affiliated with the federal government and charging upfront debt relief fees.

The CFPB also alleges that the companies “debt validation” programs violated the law by falsely promising to eliminate consumers’ debts and improve their credit scores.

The two affiliated companies are headquartered in Baltimore, Maryland and claims to provide advice and assistance to consumers to eliminate all or a portion of their debts and improve their credit scores. The service provider, also headquartered in Baltimore, processed consumer payments for the companies and provided other services.

The CFPB’s lawsuit alleges that the companies lied about having an affiliation with the federal government and required consumers to pay illegal advance fees for debt relief. The CFPB also alleges that the companies falsely promised consumers debt relief and credit repair through their “debt validation” programs.

The CFPB alleges that these practices violate the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Telemarketing Sales Rule. Specifically, the CFPB alleges that the companies engaged in the following illegal practices:

  • Deceiving consumers about an affiliation with the federal government: The companies marketed themselves through direct mailers that were designed to look like an official government notice. For example, the mailers stated that they were a “regulatory notification” with a case number and “entitlement amount.” The mailers and envelopes also included a seal similar to the Great Seal of the United States.
  •  Deceiving consumers about the companies’ debt-relief and credit-repair services abilities: The companies falsely advertised that they would eliminate or reduce consumers’ principal balances by at least 60 percent, that creditors would be unable to collect the debts, and that the programs would increase consumers’ credit scores.
  • Failing to make proper disclosures about not paying debts: The companies instructed consumers to stop making payments on the debts enrolled in their program. However, they failed to disclose that not making payments may result in the consumer being sued by creditors or debt collectors and may increase the amount of money the consumer owes due to the accrual of fees and interest.
  • Taking advance fees for debt-relief and credit-repair services: Federal law prohibits the collection of fees before a credit-repair or debt-relief company achieves certain results. The companies charged and received payment of fees for debt-relief services before altering the terms of consumers’ debts. The companies also charged and received fees for credit-repair services without achieving the promised results.

The CFPB’s lawsuit seeks to end these deceptive practices, obtain redress for harmed consumers, and impose civil money penalties.

CFPB Press Release; Complaint.